Investing.com -- Fastly (NYSE:FSLY) was downgraded from Strong Buy to Market Perform by Raymond James analysts on Tuesday, with the firm telling investors in a note that the stock's recent recovery leaves limited upside and better opportunities can be found elsewhere.
"Shares have recovered and are now close to our previous $8 price target," noted Raymond James, adding that they now see more promising prospects in data centers and larger carriers.
Fastly has been working to reset its business throughout the year, expanding its product offerings.
While the analysts acknowledge the potential for these new initiatives to gain traction, they caution that it may take a few more quarters for the company to demonstrate improved top-line and free cash flow (FCF) results.
As such, a less aggressive rating was deemed "more appropriate."
In addition, the sale of StackPath and the recent bankruptcy reorganization of a competitor could offer some opportunities for Fastly.
However, Raymond James noted that the near-term impact of these events remains unclear and could potentially benefit multiple providers, not just Fastly.
Despite keeping its 2024 and 2025 estimates unchanged, the firm removed its price target. Currently, Fastly trades at around 2x its estimated 2025 enterprise value-to-revenue, compared to peer Akamai (NASDAQ:AKAM) at 4x.
According to Raymond James, this discount is justified, given that Fastly is still free cash flow negative and more reliant on delivery services, which have faced weaker trends recently.